Pigou or coase: The dilemma over payment for environmental services (PES)

Thursday, 4 April 2013: 9:10 AM
Jorge Madeira Nogueira, Ph.D. , Economics, University of Brasília., Brasília, Brazil
Renato Rosenberg, MSc , University of Brasilia, Brasilia, Brazil
Objective:

Payments for environmental services (PSA) have been presented as a more effective and efficient alternative to control deforestation than the usual instruments of command-and-control. However, still there are very few volunteer PSA cases in Brazil. The purpose of this article is to explain this situation.

Data/Methods:

In order to achieve this objective we analyzed potential PSA programs that could be funded by hydroelectric companies to extend the period of useful life of their reservoirs and programs by water treatment and distribution companies to guaranty better water quality as input to their activities. We have also interviewed key managers and stakeholders in both sectors in relation to aspects that can incentivize or challenge the establishment of voluntary PES schemes.

Results:

Our results show that the main aspects that are inhibiting the formation of a volunteer PSA in both sectors are: a) companies have incentives to behave as free hiders because users who historically don't usually pay for the service can show resistance to do so; b) the Brazilian forest code requires landowners to conserve their forests, as well as its legal reserves; therefore companies in both sector believe that they are not supposed to participate in voluntary PES schemes to pay for something that farmers are supposed to do anyway; and c) specifically in relation to hydroelectric companies, the expansion of hydropower plant in Brazil is occurring mainly in the North of the country, where the rate of deforestation is still small and most of the hydroelectric plants are design not to have a reservoir. Therefore, it seems that a Coasean bargain through voluntary PES has been more a wishful thinking than a viable alternative to conserve biological diversity in emerging economies. If this is so, a Pigouvian tax alternatives needs to be considered.